Solution manual for international business a managerial perspective 8th edition by griffin 1

LO 1.3, AACSB: Communication Skills, Learning Outcomes: Define the fundamental concepts of international business Formatted: No bullets or numbering 5.. LO 1.3, AACSB: Communication Ski

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An Overview of International Business

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OPENING CASE: The Business of the Olympics

The opening case explores the relationship between international business and the Olympic Games

Key Points

 The Olympic Games have come to reflect international business at its most intense.

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 The Olympics are governed by the International Olympic Committee (IOC), which decides where the games will be held, which sports will be represented, and oversees the selection of judges and referees.

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 Each country that wants to participate in the Olympics must establish its own committee, which then reports to the IOC.

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 Host cities are important to the Olympics because they are responsible for

providing facilities, a volunteer workforce, and related organizational support.

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 Cities compete aggressively as they bid to be hosts For cities, the Olympics mean

a boost to tourism that continues long after the games are over, a chance to be in the international spotlight, and a catalyst for infrastructure improvements.

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 Running the Olympics requires large revenues, and host cities, along with the IOC, are constantly seeking additional sources of funds, such as television coverage and corporate sponsors.

Additional Case Application

An exercise that can help students make the connection between the Olympics and international business is to ask them to imagine the Olympics without the involvement

of corporations Students can be assigned to play the role of the different players involved in the games For example, one student can play the role of an athlete, another the role of the mayor of the host city/cities, a third the head of the IOC, a fourth the head of the national committee, a fifth the role of a spectator, and so forth

CHAPTER SUMMARY

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Chapter One introduces the topic of international business by initially asking “what is international business” and then moving on to ask “why is it important to study international business?” The chapter then provides an introductory definition and explanation of some of the basic international business terminology, such as importing, exporting, and multinational corporation

The chapter moves on to explore the evolution of international business going back to

2000 B.C examining major developments that have resulted in the growth and maturation of international business as we know it today The chapter concludes with

an overview of the text

WHAT IS INTERNATIONAL BUSINESS?

 International business involves any business transaction between parties from

more than one country It includes such activities as buying and selling raw materials, inputs or finished products across borders, operating plants in other countries to take advantage of local resources, and borrowing money in one country to finance operations in a second country.

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 International business is different from domestic business in that it necessarily involves transactions that cross national borders while domestic business does not Thus, at least one party will have to adjust to a different legal, economic, and cultural system; convert its currency into the other party’s currency; and make changes in how products are produced or the types of products that are produced.

Teaching Note:

Instructors may wish to pause for a moment at this point and ask students why a particular foreign company chose to invest in the United States It is helpful to choose a company that is in the local area; however, some well-known examples that should also generate good discussion include Honda, Sony, and Nissan While students probably won’t pick up on the finer points of why the investments were made, the question should at least get them to think about international business, and the question can be raised again later in the course

WHY STUDY INTERNATIONAL BUSINESS?

Teaching Note:

It is interesting to ask the question “why study international business” before actually discussing the material in the text Instructors will probably find that, with a little prompting, students will eventually come up with all or most of the reasons listed below

 Students need to study international business for a number of different reasons First, students will almost certainly work for a company that is either foreign owned, domestically owned but has some foreign operations, or domestically owned but is affected by the global economy Thus, if students are to be successful and productive in their careers, it is important that they understand at least the basics of why companies conduct business across borders Secondly,

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since even small businesses are becoming more active in the international business environment through activities such as buying and supplying components, students who are planning to start their own businesses should also

be cognizant of international business

 Cultural literacy is another reason for studying international business Because

business today often means international business, it is critical that students develop

the type of cultural literacy that will enable them to be conversant with the global economy and international marketplaces Furthermore, students who fail to develop such skills will find themselves losing ground to their future “competitors” (students, particularly those from Europe and Japan, who have learned multiple languages, have had job experiences in other countries and traveled widely).

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 Finally, since not all business techniques and tools are developed in the United States, students need to study international business so that they are aware of

developments taking place in other parts of the globe, such as the use of just-in-time (JIT) systems.

BRINGING THE WORLD INTO FOCUS

This section points out that, despite previous expert predictions of a boundaryless world, boundaries and borders do matter That reality impacts all aspects of international business, including, legal systems, political systems, social structures, cultural values, taxes, labor, land and other resources The CAGE System developed by Pankaj Ghemawat provides a useful framework for understanding

A Rose by Any Other Name

INTERNATIONAL BUSINESS ACTIVITIES

 International business can take various forms Exporting involves selling products

made in one’s own country for use or resale in other countries Importing involves buying products made in other countries for use or resale in one’s own country.

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Many companies begin their international operations with either importing or exporting since the risk involved is minimal

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 Merchandise exports and imports refers to trade in goods (also known as visible trade) while service exports and imports refers to trade in intangible products (also known as invisible trade) See Figure 1.1 here.

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 Exporting is important to both large and small firms For example, the text notes that

7054 percent of Boeing Aircraft Company’s sales of $33.481.7 billion in commercial aircraft sales were to foreign customers, and that Task Force Tips, a small Indiana manufacturer of fire hose nozzles, exports one third of its production.

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BRINGING THE WORLD INTO FOCUS

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The Early Era of International Business

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International business has been around for centuries In fact, its origins can be traced back as far as 2000 B.C to the trading that took place between North African tribes and parts of the Middle East Greece and the Roman Empire owe part of their early prosperity to international trade and its associated political and

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military power Some significant trading relationships that endure today were developed during the Middle Ages

The colonization of America, brought about in part because important trading routes to the Middle East were cut off when the Turks conquered Constantinople, brought new trading avenues, particularly with Europe

During the colonial period and the subsequent Age of Imperialism, foreign direct investment and multinational companies grew rapidly as Europeans invested in their colonial empires in America, Asia, and Africa The invention of the steam engine, and its associated low cost transportation, further encouraged foreign investments in the nineteenth century

 International investments, in which residents of one country supply capital to those of

a second country, constitute the second major form of international business activity

Foreign direct investments (FDI) are investments made for the purpose of actively

controlling property, assets, or companies located in foreign host countries The country

from which the investment flows is referred to as the home country The country to which the investment flows is referred to as the host

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country Portfolio investments involve purchases of foreign financial assets

(stocks, bonds, certificates of deposit) for purposes other than control

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 Other forms of international business activity A licensing agreement allows a firm

in one country to use all or some of the intellectual property of a firm in a second country

in exchange for a royalty payment A franchising agreement allows a firm in one

country to use the brand names, logos, and operating techniques of a firm in a second

country in exchange for a royalty payment Management contracts involve an

agreement in which a firm in one country agrees to operate facilities or provide other management services for an agreed-upon fee.

There are several ways to describe the extent of a firm’s international orientation At the broadest level is the international business: an organization that engages in commercial transactions with individuals, private firms, or public sector organizations that cross borders The term multinational corporation (MNC) is used to identify firms with extensive involvement

in international business More precisely, an MNC is a firm that “engages in foreign direct investment and owns or controls value-adding activities in more than one country.” MNCs also typically buy resources, create goods and/or services, and then sell those goods and services

in a variety of countries Control and coordination usually come from headquarters with subsidiaries making adjustments as necessary Non-corporations may sometimes be known

as multinational enterprises (MNEs), while not-for-profits are sometimes known as multinational organizations (MNOs).See Table 1.1 here

THE ERA OF GLOBALIZATION

Globalization can be defined as “the inexorable integration of markets, nation-states, and technologies…in a way that is enabling individuals, corporations, and nation-states to reach around the world farther, faster, deeper, and cheaper than ever before.” This is evidenced by the dramatic growth of international trade over the last several decades You may also note the impact of the Global recession In 2009, trade volumes decreased more than the world’s GDP did, thus causing the ratio of trade to GDP to fall See Figure 1.2 here The growth in foreign direct investment (FDI) has also been tremendous (by

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200911, the stock of FDI equaled almost 3260 percent of that years GDP) See Figure 1.3 here CONTEMPORARY CAUSES OF GLOBALIZATION

Today, firms expand internationally for a variety of reasons Some of the reasons are strategic, others are environmental

Strategic Imperatives

 To leverage core competencies That is, firms that have skills that help them

compete successfully in one country will often expand in order to further benefit from those skills.

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 To acquire resources and supplies The price and availability of materials, land,

labor, capital, and technology varies across countries Firms may be able to acquire resources or produce more efficiently by expanding internationally.

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 To seek new markets Once a company's home market becomes saturated, sales

can be increased by expanding to markets beyond the firm's home country's borders.

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 To better compete with rivals Firms often prefer to not concede markets to a rival

Therefore, when one firm expands into a new market, other firms in the same industry may follow.

The Environmental Causes of Globalization

 Changes in the political environment The collapse of trade barriers (especially since

WWII) and the establishment of new trade agreements (e.g., NAFTA, CAFTA-DR, GATT/WTO) have promoted greater international trade and investment.

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 Technological changes Phones, faxes, e-mail, air travel, and a host of other

technological changes have made international business easier and more feasible than ever before.

Globalization and Emerging Markets

 International business activity has expanded geographically with the collapse of European communism and policy changes in China and India The markets beyond

North America, Western Europe, and Japan are often referred to as emerging markets Some scholars limit emerging markets to Brazil, Russia, India, and China (BRIC countries) Others use different categorizations Table 1.2, which provides

demographic information on emerging markets, should be discussed here.

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EMERGING OPPORTUNITIES

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Is Globalization Good for Us?

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This box considers the conflicting aspects of globalization as described by Thomas

L Friedman in his book The Lexus and the Olive Tree The economic integration

associated with globalization may lead to many economic benefits (i.e., the Lexus), but it may also create costs as traditional values and norms (the olive tree) are forsaken

AN OVERVIEW OF THE BOOK

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 The text takes the perspective of the manager or employee who is or will be competing

in the international marketplace and identifies the major similarities and differences

between doing business domestically and doing business internationally.

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 The text develops the more macro, general issues before moving on to explore the

more micro, specific areas that managers face on a regular basis In doing so,

students will become familiar with the context within which international business

takes place before examining the international manager’s tasks.

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 Part One provides an overview of the world's marketplaces Parts Two through

Four move from broader issues, such as the international environment, to the

international firm, and finally to discussing specific functions within international

firms Discuss Figure 1.4 here.

CHAPTER REVIEW

1 1-1 What is international business? How does it differ from domestic business?

International business involves any business transaction between parties from more than

one country It differs from domestic business in that international business transactions

cross national borders while domestic transactions do not More specifically, international

business involves foreign currency transactions for at least one party, it may require a

company to adjust to a foreign legal system and/or culture, and the way products are

produced or the types of products that are produced may vary according to the availability

of resources in different countries (LO 1.1, AACSB: Communication Skills, Learning

Outcomes: Define the fundamental concepts of international business)

2 1-2 Why is it important for you to study international business?

There are at least five reasons why it is important to study international business First,

students will probably work for a company with international operations or one that is

affected by the global economy Second, students may actually work for a firm that is

owned by a corporation based in another country Third, it is important to keep pace with

future “competitors” (other job seekers) who are well versed in international business

Fourth, it is important to stay abreast of the latest business techniques and tools, which

may actually be developed outside of the United States Finally, it is important to avoid

cultural illiteracy, a label given to those who are not conversant with the global economy

and international marketplaces (LO 1.2, AACSB: Communication Skills, Learning

Outcomes: Define the fundamental concepts of international business)

3 1-3 What are the basic forms of international business activity?

The basic forms of international business activity are importing and exporting, international

investments, licensing, franchising, and management contracts Exporting involves selling

products made in one’s own country for use or resale in other countries, while importing

involves buying products made in other countries for use or resale in one’s own country

International investments include foreign direct investment and portfolio investments

Foreign direct investments are investments made for the purpose of actively controlling

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property, assets, or companies located in foreign host countries, while portfolio investment

involves the purchase of foreign financial assets, such as stocks, bonds, and certificates of

deposit for purposes other than control A licensing agreement allows a firm in one country

to use all or some of the intellectual property of a firm in another country in exchange for a

royalty payment A franchise agreement authorizes a firm in one country to utilize the

brand names, logos, and operating techniques of a firm in a second country in exchange

for a royalty payment Management contracts involve an agreement in which a firm in one

country operates facilities or provides other management services to a firm in another

country for a fee (LO 1.3, AACSB: Communication Skills, Learning Outcomes: Define the

fundamental concepts of international business)

4 1-4 How do merchandise exports and imports and service exports and imports differ?

Merchandise exports and imports refer to trade in goods while service exports and imports refer

to trade in intangible products The former is sometimes referred to as visible trade while the

latter is sometimes referred to as invisible trade (LO 1.3, AACSB: Communication Skills,

Learning Outcomes: Define the fundamental concepts of international business)

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5 1-5 What is portfolio investment?

Portfolio investments involve purchasing foreign financial assets such as stocks, bonds, and

certificates of deposit for purposes other than control (LO 1.3, AACSB: Communication Skills,

Learning Outcomes: Define the fundamental concepts of international business)

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6 1-6 What are the basic reasons for the recent growth of international business activity? Formatted: No bullets or numbering

A number of factors have led to the recent growth of international business The more important

factors include market expansion, resource acquisition, competitive forces, technological

change, and social change Market expansion has led to growth in international business as

firms, facing saturated domestic markets, seek new market opportunities in other countries In

some cases, firms will also expand into other markets as they seek resources such as materials,

labor, and/or capital Such resources may either be scarce or unavailable domestically The

competitive forces that exist in today’s marketplace also encourage the internationalization of

business When a firm’s competitors expand into new markets, that firm must also

internationalize Changes in technology, particularly in areas such as communications,

transportation, and information processing, are making it increasingly easier for firms to carry out

international transactions, thus adding to the growth of international business Social change is

making it possible for firms to sell their products more easily in foreign markets Consumers

today are much more aware of the products and services being offered in other markets, and are

therefore more likely to seek out foreign-made products than in the past Finally, looser

government trade and investment policies have made it easier for international businesses to

capitalize on growth opportunities in the global marketplace (LO 1.4, AACSB: Communication

Skills, Learning Outcomes: Discuss trends in and the debate over globalization)

QUESTIONS FOR DISCUSSION

1 1-7 Why do some industries become global while others remain local or regional? Formatted: No bullets or numbering

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There are a number of factors that play a role in determining which industries become

global, which become regional, and which remain local The airline industry, for example,

is considered a global industry One of the main reasons for this status is the cost of

developing and producing large aircraft, combined with market size The industry is

“forced” to be global because it must sell aircraft to a marketplace that is big enough to

justify the costs of developing and building new jets No single country has a market big

enough to justify such costs, thus companies must seek customers around the globe On

the other hand, the bakery industry tends to be regional or local because its products tend

to perish very easily While improvements in transportation and shipping have created a

larger marketplace, for the most part, firms in this industry cater to local customers From

this brief discussion, it is clear that factors such as cost, market size, and product life all

play a role in determining which industries will be global and which will not However, it is

important to recognize that many other factors (for example, resource availability,

government regulations, and similarity of customer taste) also play a role in this

determination (LO 1.4, AACSB: Analytical Skills, Learning Outcomes: Discuss trends in

and the debate over globalization)

2 1-8 What is the impact of the Internet on international business? Which companies and

which countries will gain as Internet usage increases throughout the world? Which will

lose?

The Internet has had a significant impact on international business in at least three ways

First, the Internet facilitates international trade in services (e.g., banking, education, and

retailing) Second, it has helped level the playing field between large and small firms

entering a foreign market, since even small firms can sell their products internationally on

the Web Third, the Internet can make business-to-business transactions (e.g., bringing

together suppliers and buyers) much easier and more efficiently (LO 1.4, AACSB:

Analytical Skills, Learning Outcomes: Discuss trends in and the debate over globalization)

3 1-9 Which markets are more important to international business – the traditional

your answer.

Clearly, the volume of business in the traditional markets is much greater than the volume

in emerging markets However, as the traditional markets become saturated, opportunities

for growth will increasingly shift toward emerging markets (LO 1.4, AACSB: Analytical

Skills, Learning Outcomes: Discuss trends in and the debate over globalization)

4 1-10 Does your college or university have any international programs? Does this make

the institution an international organization? Why or why not?

Students who attend a college or university that has international programs will probably find

this question interesting Students who do not have international programs available to them can

still find the question worth considering if they use a little imagination The text defines

international organizations to include public sector organizations that cross national borders

With this definition in mind, a college or university could very well be considered an international

organization However, it is important to consider the type of international programs an

institution has to offer For example, one could argue that a university that simply offers several

courses that deal with international business is not an international organization because the

institution at that point does not cross borders (see definition

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above) In contrast, it could be argued that a university that offers courses in international

business and also offers a student exchange program is an international organization

because the missing element in the previous example (of crossing borders) is fulfilled

because of the exchange program The key point in this question, therefore, is to

determine exactly when international programs make a college or university an

international organization (LO 1.2, AACSB: Analytical Skills, Learning Outcomes: Discuss

trends in and the debate over globalization)

5 1-11 What are some of the differences in skills that may exist between managers in a

domestic firm and those in an international firm?

When compared to domestic managers, international managers, by definition, are more

likely to consider business from a global perspective In doing so, international managers

should consider such variables as exchange rates, cultural differences, differences in the

political and economic environments, trade barriers, and so forth In contrast, the domestic

manager is not likely to be concerned with any of these variables and will instead focus on

the domestic marketplace The international manager will probably see the world as the

marketplace and in doing so, develop a keen awareness of the differences between

markets, while the domestic manager will not (LO 1.2, AACSB: Analytical Skills, Learning

Outcomes: Discuss trends in and the debate over globalization)

6 1-12 Would you want to work for a foreign-owned firm? Why or why not?

The answer to this question is, of course, based on a student’s opinion and therefore can

generate a lot of discussion Some students may already work for a foreign-owned firm;

some may work for a owned firm and not realize it Students who work for

foreign-owned companies can be asked to contrast their experiences in the company with

positions they may have held elsewhere (or can be asked to simply comment on their

experiences if they have not held other positions) This can set the stage for a discussion

of the merits of working for or not working for foreign-owned companies (LO 1.2, AACSB:

Analytical Skills, Learning Outcomes: Discuss trends in and the debate over globalization)

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BUILDING GLOBAL SKILLS

Essence of the exercise

This exercise is designed to help students realize just how extensive the effect of international

business is by asking them to consider the country of origin of items that are part of their daily

lives, such as their cars, clocks, coffee makers, and computers The exercise requires

students to compile a list of products they use on a regular basis and find out more about the

companies that produce them

Answers to the follow-up questions:

Student answers may vary

1-14 What percentage of the firm ’s sales come from its home market? What percentage comes

from other countries?

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Student answers may vary

1-15 Where was the item most likely manufactured?

Student answers may vary

1-16 Why do you think it was manufactured there?

Student answers may vary, but will probably include cost or location factors, or access to

resources and/or materials

1 1-17 Discuss the relative impact of international business on your daily lives

If this exercise is used at the beginning of class, prior to coverage of the chapter material,

many students will probably be at a loss as to how international business affects their daily

lives If the exercise is used after the chapter material has been covered, students will

probably be able to discuss things such as the fact that their cars may be made by a

foreign company or that they work for a company that is foreign-owned (LO 1.2, AACSB:

Communication Skills, Learning Outcomes: Discuss trends in and the debate over

globalization)

2 1-18 Compile a combined list of the 10 most common products the average college

student might use.

The lists that students compile will vary; however, some of the more common items that

might appear are pens, computers, cars, and beer (LO 1.4, AACSB: Analytical Skills,

Learning Outcomes: Discuss trends in and the debate over globalization)

3 1-19 Try to identify the brands of each product that are made by domestic firms

Students will probably identify different brands; some of the more common ones that are

related to the products listed in Question 2 above are: Paper-mate, IBM, Ford, and

Budweiser (LO 1.4, AACSB: Analytical Skills, Learning Outcomes: Discuss trends in and

the debate over globalization)

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4 1-20 Try to identify brands of each item that are made by foreign firms

Students will probably have more difficulty with this question Again, using the products

listed in Question 2 above, foreign brand names might include: Bic, Goldstar, Honda, and

Bass (LO 1.4, AACSB: Analytical Skills, Learning Outcomes: Discuss trends in and the

debate over globalization)

5 1-21 Does your list of 10 products include items that have components that are both

domestic-made and foreign-made?

The answer to this question will probably require a bit of guesswork However, of the

products listed in Question 2, one could argue that the car and possibly the computer are

probably assembled with both U.S.- and non-U.S.-made components (LO 1.4, AACSB:

Analytical Skills, Learning Outcomes: Discuss trends in and the debate over globalization)

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